How to Spot a Crypto Project Scam?
Due to the exponential growth of the cryptocurrency market in the last few years, scams like Pump and Dump and even fake websites to trick new investors have become a hot issue in the world of cryptocurrencies in 2020. Additionally, these scammers are constantly seeking out new ways to develop projects to deceive investors. As a result, people interested in cryptocurrency should be careful and aware of the risk. In order to provide preventive guidelines and considerations so that readers do not fall victim to a cryptocurrency scam, SCB 10X is introducing basic information about the scam in various forms in this article.
Overview of Scams in the World of Crypto
To take advantage of people with little experience, scammers create trickery that is more complicated. This includes speculation, a traditional trick, and intervention to identify a bug in the user's application for managing and storing digital assets.
To take advantage of people with little experience, scammers create trickery that is more complicated. This includes speculation, which is a traditional trick, and intervention to identify a bug in the user's application for managing and storing digital assets.
The frequently found and well-known classic technique to deceive cryptocurrency investors is called "Rug Pull," in which scammers create coins or projects and vigorously promote them by promising investors counterfeit or overrated benefits.
These scammers intend to increase the token's value by convincing investors that they can easily get a reward or make a large profit. What gives the scheme a realistic appearance is that it is well-planned in order to generate a fake trading volume within the specified time and persuade the investors that their projects are long-term and sustainable. The technique is different from the typical "Pump and Dump." When the projects grow as expected, the team of scammers holding the most coins will then sell everything and make enormous profits to drain the liquidity. The investors are consequently left with worthless coins that are unable to be sold.
An observation regarding the projects that are probably a scam
After briefly discussing a cryptocurrency scam example, let us make the following observation to pinpoint the projects that were probably developed with the intention of misleading consumers.
- White Paper
A white paper is a document that outlines the project's goal. The user should exercise caution and check because it might only display data that explains what causes the price of the coin to rise rather than describing the project's business model, economic system, coding issues, and other factors. Reliable and intentional projects typically have a white paper and exquisite research that align with the goal.
Roadmap displays a clear project diagram that explains how technology is used in the project's protocol. It is comparable to the abridged version of a white paper that outlines the project's long-term goals and previous achievements in a related field. It is probably a scam if the plan seems unrealistic or unreasonable.
- Related Party
Other significant factors that must be taken into account include identity, professional background, and team relationships. If the project team members share identifiable personal data with the public, it appears positive and establishes the project's credibility. However, early partnership announcements when a project is new and has a short operational period need to be observed and handled carefully because most large projects or businesses typically invest a lot of time and energy into developing their reputations.
In addition, you should be careful of tokens or cryptocurrency coins heavily advertised by celebrities or in commercials but still ambiguous. This appears to be excessive persuasion because the scammers’ goal is to increase the perceived importance of the project, which has a positive impact on the price and eventually causes FOMO (fear of missing out) in the victims.
- Consider how things are going on websites or social media
Unprofessionally designed and developed websites could be a bad sign. A method of verification is to look up the preferred websites' domains on websites that perform domain checks, like who.is. Some domain names are frequently recognized as scam websites. You can still check the link leading to the related websites even if the entire website appears to be credible. If a link is broken or its session has ended, it can primarily reflect a problem with the project's long-term plan.
Projects that use the names of other relevant, trustworthy websites for the project's approval but contain false or overstated references should also be avoided. You should be wary of a website if it contains messages that are overly approved or exaggerated.
Checking the project's social media or community is another way of observing. You should leave a project if other users criticize or express an opinion about token or protocol errors but the team offers no or an ambiguous response. By reading topics or information on Twitter and other platforms, new users can also discover and check the responses, viewpoints, and emotions of the project's community. These techniques may be helpful.
There is a high risk of scams if there are only a few lists of trading coins or tokens available on exchange platforms, both centralized and decentralized.
It is also important to take token liquidity into account. The total value of the assets that can be traded on a market or pool is called liquidity. Low liquidity usually indicates that a cryptocurrency project is new or is only used by a small number of people.
However, there are websites available today that allow you to check each platform's liquidity. The user can look up information about their chosen tokens on both the blockchain network and exchange.
Unquestionably, a large number of investors who participated in the crypto trend at its beginning have received worthy rewards, leading many people to misunderstand and anticipate a similar outcome. This causes the number of scammers' victims to continuously increase. Therefore, ongoing research and careful analysis are essential, especially in the innovative crypto industry, to prevent and lower the risk of losing assets to new users through scam projects as it never runs out of new tricks to employ.